Glossary· Benchmark-relative
What is Alpha?
Also known as Jensen's alpha
Annualized return above what the fund's market exposure alone would predict.
Positive alpha is the manager adding something the index didn't hand them. It is a residual, so it is only as meaningful as the benchmark fit — check R² before believing an alpha figure.
For the formula and the constants behind this figure, see Methodology.
Guides that use Alpha
2 guides put this term to work.
- Decoding alpha and beta: manager skill versus market riskBeta is how much market you took; alpha is what you got beyond it; R² tells you whether either number means anything. Read in that order, they catch a closet index fund.
- Anatomy of a legendary fund run — and why it endedThe five phases every great run follows, why most investors arrive at phase four, and how to separate skill from a style tailwind using numbers rather than the story.
More on benchmark-relative
How the fund behaved against its index. All computed from 36 monthly returns, so a fund needs about three years of history to show any of them.
- Beta
- How hard the fund moves when the index moves. 1 = in step.
- R²
- How much of the fund's movement the benchmark explains, 0–100%.
- Treynor ratio
- Excess return per unit of beta rather than per unit of total volatility.
- Information ratio
- Return above the benchmark, per unit of tracking error.
- Tracking error
- How far the fund's returns typically stray from the benchmark's, annualized.
- Upside capture
- The share of the index's gains the fund captured in months the index rose. 100 = matched it.
- Downside capture
- The share of the index's losses the fund took in months the index fell. Lower is better.